Pepsi 2012 Annual Report Download - page 86

Note— Income Taxes
2012 2011 2010
Income before income taxes
U.S. $ 3,234 $ 3,964 $ 4,008
Foreign 5,070 4,870 4,224
$ 8,304 $ 8,834 $ 8,232
Provision for income taxes
Cur ren t: U. S . Fe der al $ 911 $ 611 $ 932
Foreign 940 882 728
State 153 124 137
2,004 1,617 1,797
Deferred: U.S. Federal 154 789 78
Foreign (95) (88) 18
State 27 54 1
86 755 97
$ 2,090 $ 2,372 $ 1,894
Tax rate reconciliation
U.S. Federal statutory tax rate 35.0% 35.0% 35.0%
State income tax, net of U.S. Federal
tax benefit 1.4 1.3 1.1
Lower taxes on foreign results (6.9) (8.7) (9.4)
Tax benefit related to tax court
decision (2.6) – –
Acquisitions of PBG and PAS – – (3.1)
Other, net (1.7) (0.8) (0.6)
Annual tax rate 25.2% 26.8% 23.0%
Deferred tax liabilities
Investments in noncontrolled
affiliates $ 48 $ 41
Debt guarantee of wholly owned
subsidiary 828 828
Property, plant and equipment 2,424 2,466
Intangible assets other than
nondeductible goodwill 4,388 4,297
Other 260 184
Gross deferred tax liabilities 7,948 7,816
Deferred tax assets
Net carryforwards 1,378 1,373
Stock-based compensation 378 429
Retiree medical benefits 411 504
Other employee-related benefits 672 695
Pension benefits 647 545
Deductible state tax and interest
benefits 345 339
Long-term debt obligations acquired 164 223
Other 863 822
Gross deferred tax assets 4,858 4,930
Valuation allowances (1,233) (1,264)
Deferred tax assets, net 3,625 3,666
Net deferred tax liabilities $ 4,323 $ 4,150
Deferred taxes included within:
Assets:
Prepaid expenses and other
current assets $ 740 $ 845
Liabilities:
Deferred income taxes $ 5,063 $ 4,995
Analysis of valuation allowances
Balance, beginning of year $ 1,264 $ 875 $ 586
Provision 68 464 75
Other (deductions)/additions (99) (75) 214
Balance, end of year $ 1,233 $ 1,264 $ 875
For additional unaudited information on our income tax poli-
cies, including our reserves for income taxes, see “Our Critical
Accounting Policies” in Management’s Discussion and Analysis.
Reserves
A number of years may elapse before a particular matter, for
which we have established a reserve, is audited and finally
resolved. The number of years with open tax audits varies
depending on the tax jurisdiction. Our major taxing jurisdic-
tions and the related open tax audits are as follows:
• U.S. — during 2012, we received a favorable tax court deci-
sion related to the classification of financial instruments.
We continue to dispute three matters related to the 2003–
2007 audit cycle with the IRS Appeals Division. We are
currently under audit for tax years 2008–2009;
• Mexico — audits have been completed for all taxable years
through 2005. We are currently under audit for 2006–2008;
• United Kingdom — audits have been completed for all tax-
able years through 2009;
• Canada — domestic audits have been substantially com-
pleted for all taxable years through 2008. International
audits have been completed for all taxable years through
2005; and
• Russia — audits have been substantially completed for all
taxable years through 2008. We are currently under audit
for 2009–2011.
While it is often difficult to predict the final outcome or the
timing of resolution of any particular tax matter, we believe
that our reserves reflect the probable outcome of known
tax contingencies. We adjust these reserves, as well as the
related interest, in light of changing facts and circumstances.
Settlement of any particular issue would usually require the
use of cash. Favorable resolution would be recognized as a
reduction to our annual tax rate in the year of resolution. For
further unaudited information on the impact of the resolu-
tion of open tax issues, see “Other Consolidated Results” in
Management’s Discussion and Analysis.
We believe that it is reasonably possible that our reserves
for uncertain tax positions could decrease by approximately
$1.5 billion within the next twelve months as a result of
the completion of audits in various jurisdictions, including
the potential settlement with the IRS for the taxable years
2003–2009.
As of December29, 2012, the total gross amount of reserves
for income taxes, reported in income taxes payable and other
liabilities, was $2,425million. Any prospective adjustments
to these reserves will be recorded as an increase or decrease
to our provision for income taxes and would impact our
effective tax rate. In addition, we accrue interest related to
2012 PEPSICO ANNUAL REPORT84
Notes to Consolidated Financial Statements